The Coming Cool War With China

June 3 (Bloomberg) -- Someone steals your most sensitive
secrets. Then, planning a face-to-face meeting, he says he wants
to develop “a new type” of relationship with you. At what point,
exactly, would you start thinking he was planning to drink your
milkshake?

Ahead of the first summit meeting between U.S. President
Barack Obama and President Xi Jinping of China on June 7, the
two nations are on the brink of geopolitical conflict. As its
officials acknowledge, China is a classic rising power, poised
to challenge U.S. dominance. In historical terms, the sole
global superpower never gives up without a fight.

“China’s peaceful rise” was a useful slogan, while it
lasted, for China’s leaders. “America’s peaceful decline” will
get no one elected, whether Democrat or Republican. Geopolitics
is almost always a zero-sum game. If China can copy or work
around U.S. missile defenses, fighter jets and drones, the
U.S.’s global position will be eroded -- and the gains will go
directly to China.

At the same time, trade between the two rivals remains
robust. Last week, Henan-based Shuanghui International Holdings
Ltd. agreed to buy the U.S. pork-processing giant Smithfield
Foods Inc. for $4.7 billion. This could be the single-largest
Chinese acquisition of a U.S. company, and it is reason for
enthusiasm. Mutual ownership of significant corporate assets
across borders doesn’t miraculously guarantee peace, nor can it
make conflict disappear overnight. But it gives both sides the
incentive to manage geopolitical conflict, and not let it
overtake the tremendous mutual benefits created by trade.

Entwined Economies

The juxtaposition of rising tensions over cyber-attacks and
the pork cooperation perfectly captures the paradoxical state of
Chinese-U.S. relations -- and explains why officials on both
sides are struggling to come up with a new conceptual framework
to understand the change. Never before has a rising power been
so economically interdependent with the nation challenging it.
The ties go beyond the U.S.’s 25 percent market share for
Chinese exports or China’s holdings of 8 percent of the
outstanding U.S. national debt. They include about 200,000
Chinese studying in the U.S. and perhaps 80,000 Americans living
and working in China.

The combination of geopolitical competition and economic
interdependence sets the terms for the struggle that won’t be a
new Cold War so much as a Cool War. If the Soviet Union and the
U.S. avoided all-out conflict because of mutually assured
nuclear destruction, the relations between China and the U.S.
today could be defined by the threat of mutually assured
economic destruction. The economic costs of violent conflict
would be incalculably large.

As a practical matter, however, we mustn’t assume that
economic interdependence precludes the possibility of old-fashioned violence. On the positive side, China is urging North
Korea to re-engage with the six-party talks and denuclearize the
Korean Peninsula -- a sign that the government in Beijing
realizes that its unruly ally could do significant damage to
regional stability. On the negative side, North Korea seems
perfectly content to ignore its mentor’s directives. As we
learned during the Cold War, proxies don’t always behave the way
their would-be masters want them to. It is far from clear that
the Americans and the Soviets wanted their allies in the Middle
East to go to war in 1967, 1973 or 1981.

What steps, then, should Obama take in preparation for a
summit at which he will confront an adversary who wants a much
greater role in their mutual relationship? How should we think
about keeping the Cool War from getting hot?

‘Chinese Dream’

The first is to understand the structure of motivation on
the other side. A nationalist Chinese public will expect a
rising China to be treated as a counterpart by the U.S. -- and
Xi, who has spoken of achieving the “Chinese dream,” must be
attuned to this public expectation over the medium term. In the
immediate future, however, the legitimacy of the Chinese
Communist Party still depends upon continued high rates of
export-driven growth. And Xi’s most important job -- today,
tomorrow and forever -- is keeping the party in power.

Understanding this motivation reveals the main U.S. levers
against a rival bent on narrowing the military-technology gap:
China’s continuing dependence on the U.S. export market, and
more broadly, China’s need to integrate into the global economy
to maintain economic vitality. Of course, it would be
precipitous for Obama to draw any direct links between U.S.
security interests and America’s willingness to keep its borders
open to Chinese companies.

But the message should nevertheless be communicated
clearly: The U.S. won’t tolerate being subject to cyber-attacks
designed to change the military-strategic balance. A country
that steals your trade secrets can become your economic enemy;
one that steals your national-security secrets is signaling that
it may become an actual security enemy.

The long-term strategy for managing the Cool War is the
same: Keep the pork foremost. The positive gains from trade can
and must be leveraged to move both sides’ incentives away from
force and toward cooperation. We shouldn’t be seeking to create
a utopia. But we can and should use the magic of trade and
economic cooperation to shift the incentives that push great
powers to fight each other. The iron laws of history, like the
iron laws of economics, are malleable.

(Noah Feldman, a law professor at Harvard University and
the author of the forthcoming “Cool War: The Future of Global
Competition,” is a Bloomberg View columnist. Follow him on
Twitter. The opinions expressed are his own.)